Legislations and Policies

Farmer Bills 2020: The Fallacies in Neo-Liberalism

Devansh Kaushik

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The 2020 Farm Bills reflect the neo-liberal view that an enhanced role for markets is the given path for economic growth. Such a view suffers from inherent fallacies in its view of state and legal regulation.

Introduction

Three legislations – The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act (“FPTC”), The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act (“FAPS”), and The Essential Commodities (Amendment) Act, 2020 (“ECA”), constitute the most controversial legal and policy development in India in recent years. Much debate has already occurred in media and policy circles on the desirability of these bills. The present article attempts a different approach by locating these developments in the context of the neo-liberal movement. 

I argue that these bills reflect the neo-liberal view that an enhanced role for markets is the given path for economic growth. Such a view is devoid of context and suffers from inherent fallacies in its view of state and legal regulation.


Overview of the Bills

Broadly the crux of these 3 legislations may be crystallized as – First, the FPTC Act allows for intra-state and inter-state trade of farmers’ produce beyond the Agricultural Produce Market Committee (APMC) markets. Second, the FAPS Act creates a framework for contract farming. Third, the ECA limits the government’s power to regulate supply and stock of food produce.

The intent behind these bills, as can be inferred from their statements of object, is broadly to ‘free’ farmers from having to sell their produce only at the APMC markets, ‘empower’ them to engage with agri-business firms and to encourage private investment in agriculture. The language used is typical neo-liberal terminology, espousing ideals of freedom and free-enterprise. It is important to note that while the present bills may represent a watershed moment, they are in actuality, merely a continuation of incremental policy changes being implemented since the 1990s, aimed at liberalising the agricultural sector of the economy.

First of all, the legislative capability of the central government to enact these reforms itself, is questionable. ‘Agriculture’ and ‘markets’ are expressly listed as a ‘state subjects’ in the Constitution (Schedule VII, List II, Entry 14 and 28). The power of the central government in this sphere is limited to regulating ‘trade and commerce’ in the concurrent list (Schedule VII, List III, Entry 33) With these bills, the central government is also seeking to extend its authority, through provisions empowering it to issue directions to state governments in course of implementation of these bills (S.16 FAPS Act and S.12 FPTC Act). Agriculture in a country as diverse as India differs markedly from state to state, which was the original rationale behind designating it as a state subject. While a top-down decision-making model as envisaged by these bills facilitates liberalisation and integration of markets, it risks overlooking differing contexts and the special needs of vulnerable stakeholders.


Critical Evaluation of the Bills

The present bills are an instance of misguided neoliberal reforms, reflecting their typical fallacies such as –  

1.     Normalisation of Market

The classic neo-liberal assumption is that the unfettered market is the natural state. Such a market is neutral between the interests of different groups and fair to all. Liberalisation is portrayed as beneficial to all. This normalised conception of market creates a false division between the economic and political spheres.[1] It overlooks the benefits accruing to entrenched interests and the externalisation of costs of production.

The present bills are expressly intended to reconceptualise the agricultural sector as a ‘free market’, giving freedom to firms and farmers alike. Government spokespersons have also criticised the ‘politicisation’ of these bills, building on the normalisation of the market.

Such assumptions overlook the ground reality of agriculture in India, where approximately 86% of landholdings are small and marginal (less than 2 hectares) and 70% of agricultural households are in debt (spending more than they earn). A majority (and the most vulnerable) of farmers, thus, have negligible bargaining capability and economic capacity. If exposed to well-funded, large-scale capitalists, they are likely to be losers in any transaction. This outcome can be expected considering the precedents of such reforms in recent history. In the limited areas where contract farming had been allowed in India, several instances of multimillion corporations like Pepsi and Monsanto, exploiting the power dynamics against small scale farmers, have already been observed.

On a macroeconomic scale, the most compelling example is of Bihar, a large agricultural state which had enacted similar reforms in 2006 to attract private investments, in form of the Bihar Agriculture Produce Market (Repealing) Act, 2006. However, post 2006, the state has seen increasingly volatile prices, erratic growth, and a decline in farmer income. The existing APMC infrastructure also declined in absence of revenue as traders shifted to the unregulated and untaxed market space. However, in absence of any regulatory framework, farmers were deprived of fair prices and requisite infrastructure. This outcome also corresponds with the lived experiences of farmers all over the country, when dealing with non-supported crops like ragi and maize, which see increased price volatility and profiteering by traders.

The present reforms bills follow a similar trajectory. Removal of storage regulation under the ECA, further expands the scope of private players to engage in hoarding and market speculation.


2.     Anti-State Rhetoric

In the neo-liberal discourse, anti-state rhetoric is a common feature. This includes depicting state as the source of inefficiency, state welfare measures as the cause of dependency, and state presence in the economy as being vulnerable to capture by special interests. At the same time, the problems with ‘private power’ are overlooked, while the market is praised as the site of democracy and opportunity. The assumption is that the state is an external entity separable from social and economic life.[2]

In context of the farmer bills, the state here represents the present public procurement system. Similar rhetoric has been used in the defence of these bills. Public Procurement has been deprecated for its wastage, while the protests are said to be a result of farmer dependency created by excess state support. The protests are also said to be engineered by special interest groups such as middlemen.

The fallacy in such rhetoric is the belief that the market provides equal opportunity to all and overlooks the distributional role of the state. In reality, the state cannot be divorced from its role in social and economic sphere. The present ‘deregulation’ is also implicitly empowering private actors in these spheres. As demonstrated by the case of Bihar, state withdrawal happens at the expense of the farmers. While the public system in its present form may indeed be inefficient to a degree, that alone is not grounds of dismissing the role of the state. If private actors are being empowered, adequate safeguards to protect the interests of farmers also need to added in the law.


3.     The Claim of ‘Deregulation’

A common feature in neoliberal discourse around liberalisation is how it merely involves removing constricting regulation, not creating or destroying any substantive right. Neoliberal legal discourse involves separating the body of legal rules into ‘law’ and ‘regulation’, where law is defined in terms of private rights, while regulation is state intervention in market. The neo-liberal demand of de-regulation entails removal of the latter. The role of state is sought to be limited to the enforcement of rights.[3] The farmer bills have also been repeatedly defended in these terms, that they ‘merely’ remove impediments (regulations), rather than any substantive rights. Government spokespersons repeatedly highlight how the existing APMC and MSP systems are not being removed.

The fallacy in this argument is that law and state can never be truly separated from the market. State institutions are integral to and overlap with market institutions.[4] Markets require a rules-based system with state backing in order to ensure certainty. Similarly, there is no clear distinction between ‘rights’ and ‘regulation’. There is no default set of legal arrangements corresponding to an ‘original’ notion of the market. The neoliberal claim overlooks the conflict of rights and importance of regulation for enforcement of socio-economic rights.[5]

‘Deregulation’, more often than not, also includes switching to an alternative system of rules and entitlements. Removal of state regulation amounts to intervening in favour of the stronger parties in the resulting status quo. The rules of contract and property, which are essential to the market, also require state enforcement. These legal regimes come with their own biases towards powerful interest groups. The present bills also contain specific provisions to facilitate commercial interests. For instance, S.2 of ECA for instance provides a blanked exemption from stock regulation to exporters.

Another instance is of the dispute resolution provisions in the FAPS and FPTC Acts. The jurisdiction of civil courts has been barred (S.19 FAPS Act; S.15 FPTC Act), and replaced with a sui-generis bureaucrat-managed system to ensure more efficient and time-bound enforcement of these private agreements. The new system involves mandatory referral of disputes to a ‘conciliation board’, to be appointed by the concerned Sub-Divisional Magistrate (SDM). Appeals are also restricted to the local collector (S.19 FAPS Act; S.15 FPTC Act). However, SDMs are government employees and lack the judicial expertise, independence and security of tenure, to be trusted to act impartially. Farmer unions have expressed fears that such a system is going to favour the more-influential corporate buyers.

With regards to the claim that the exiting APMC system shall remain as an alternative, it is apparent that the APMCs have now been rigged to fail. As was observed in Bihar, now that a tax-free alternative has been offered, traders will switch to direct purchases. Upto a 50% drop in crop arrivals at APMCs has already been observed. As the existing APMCs are shunted out of trade and starve of revenue, they are expected to eventually shut down, depriving farmers of this support. The presence of APMCs ensured that farmers always had the option to sell their produce as per benchmark rates through transparent auction. In their absence, farmers will have no alternative to profit-seeking commercial traders.


4.     The Best Practice Argument

In neo-liberal discourse, liberalisation, privatisation and globalisation are lauded as the proven path to economic prosperity. This idea, promoted by institutions like the WTO and World Bank, is based on a fixation on the western development model. This set of best practises includes elimination of price supports, production subsidies and a ‘de-regulated’ economy.[6]

The farmers bills which are based on the above model, have thus been defended as a realignment of Indian agriculture to global best practises. The probable role of the World Trade Organisation in precipitating these reforms cannot be overlooked. Agricultural subsidies are a contentious issue in WTO and the Indian government has been under criticism for allegedly exceeding the limits of production subsidies as stipulated by the Agreement on Agriculture (AoA).

The fallacies with the best-practise argument are its assumptions that comparative policy judgements may be made across states with widely differing socio-economic contexts. The Indian case is unique with its monsoon-dependent agriculture, half of its total workforce being involved in agriculture, wide-spread poverty and small sized landholdings. The state of Indian agriculture has progressively worsened even after liberalisation. The benefits of reforms have failed to percolate to the bottom rungs, while public investment has reduced as a result. The case of Bihar has already demonstrated that de-regulating the markets does not necessarily lead to an increase in private investment and agricultural growth.


Conclusion

The Farmer Bills 2020 thus reflect various fallacies of neoliberal reforms such as a normalisation of market, anti-state rhetoric, the de-regulation claim and the best practise argument. As Karl Polanyi had noted in 1944, when unregulated expansion of the market conflicts with the realistic self-protection of society, it may result in a reactionary political movement.[7] The present farmer protests are an instance of such a movement. Such an ‘unregulated expansion’ can be averted through democratic and consultative rule making, which were noticeably absent in the enactment of these bills. The ongoing protests are a result of the arbitrary enactment of these laws.  In their present form, these bills are likely to have an adverse impact on the interest of farmers in the long run.

As illustrated over the course of the preceding analysis, irrespective of the claims of the government, the likely result of these ‘reforms’ in their present form, is going to be the gradual weaking of the economic sustainability of small-scale farmers.[8] 76% of farmers already wish to give up farming. Between 2001 and 2011, as per census data, 86 lakh farmers left farming. Number of farmers went down by 7.1%, whereas the number of farm labourers went up by 3.5%. The present bills threaten to exponentially increase this trend.

Such an outcome will have structural repercussions, as the rural community is forced to make distress sales of their landholdings and turn to wage labour. It will aggravate the flight of rural labour to the cities, further pushing down wage rates and benefitting both agrarian and urban capitalist enterprises. All stakeholders agree that the status quo of agriculture in India is indeed unsustainable and requires reform. However, any such reforms need to protect the interests of most vulnerable groups. Stressing the rural agricultural economy in this manner, may bring efficiency, however it may also end up creating a separate humanitarian crisis of its own.

Effective reforms would require building state capacity, context-specific implementation and regulatory innovation. Both the gains and losses of this transition in terms of the consequences for millions of people, need to be acknowledged and accounted for. Designing an appropriate social safety net is the actual policy challenge that the government faces. Significant state investment is required in rural infrastructure, education and generating alternative employment. Leaving the market to manage this transition, exposes the vulnerable to turmoil and is an abdication of state responsibility.


The author is a BA.LLB (Hons.) student at NLSIU Bengaluru.

Image Credits: Journal of Peasant Studies


[1] Kerry Rittich, Recharacterizing Restructuring: Law, Distribution And Gender In Market Reform (Kluwer Law International 2002) pg. 55.

[2] Rittich pg. 59

[3] Rittich pg.70.

[4] Dani Rodrik, The Globalization Paradox: Democracy And The Future Of The World Economy (W W Norton & Company 2011).

[5] Rittich pg. 9.

[6] Rittich pg.47.

[7] Karl Polanyi, The Great Transformation (Farrar & Rinehart 1944).

[8] There exists prior research showing increased farmer income volatility, with greater market integration. Treb Allen and David Atkin, ‘Volatility And The Gains From Trade’ (National Bureau of Economic Research, 2016).